1

Union Pacific in Houston: Investing to Meet Freight Demands

Brenda Mainwaring, VP Public Affairs, November 12, 2013

2

Agenda

• Union Pacific Overview

• Developing Markets

• Investing for Capacity

• The Future of Rail in Houston, as we see it

3

Portland

Oakland

LA

Seattle

SLC

Eastport

Omaha

Twin Cities

Duluth

Denver

Memphis

Port access - 25 Gulf Coast Ports

Chicago

Calexico

El Paso

Eagle Pass

Brownsville

Houston

KC

St. Louis

Laredo

Dallas

New Orleans

Border crossings

Serving all Mexico interchanges and key ports.

2012 Fast Facts (Year End)

• Revenue $20.9 B

• Route Miles 32,000 in

23 States

• Employees 46,000

• Annual Payroll $4.3 B

• Customers 10,000

• Locomotives 8,400

Nogales

4 Source: TxDOT/HTNB study August 2007

5

Key commodities show strong growth

8% 9% 10%

27%

Metals (incl pipe)

Industrial Chemicals

Petroleum Products*

Frac Sand

Percent UP Volume Growth 2013 3Q vs 2012 3Q

*Petroleum Products excludes Crude Oil

6

Shale-related Business Stats

Pipeline

31% Truck to Canada

Pipelines

1%

Refinery

7%

Rail 61%

Source: North Dakota Pipeline Authority, Aug 2013 estimate

Average Start-up Well Utilizes:

30 – 50 carloads of sand

3 – 5 carloads of drilling pipe

Typical tank car holds

650 barrels of crude oil.

59,000 tank cars on order

as of Sept 2013. Source: Railway Supply Institute

0

50,000

100,000

150,000

200,000

2010 2011 2012 Jan-Sep 2013

Union Pacific Crude Oil Carloads

7

These growth commodities are driving UP’s southern region volume growth.

• Southern Region growth outpaced generally flat system growth in FY 2012 vs. FY 2011

– 5% growth in volume

– 9% growth in active workforce

– 9% growth in active locomotive fleet

8

What about Houston?

• Commodities with significant growth opportunities predominate in Houston area.

– Energy and byproducts

– Drilling materials

– Chemicals

– Mexico imports/exports

• Houston is consistently UP’s highest volume service unit. Englewood alone averages 1,500 cars per day.

• Union Pacific dispatches more than 100 trains per day in the Houston Terminal complex.

9

What does that mean for Houston roadways?

• With 100 trains per day, the Houston Terminal rail network handles the equivalent of tens of thousands of trucks on a daily basis

– Intermodal trains are a highly visible example – one train can take up to 300 trucks off highways

• Union Pacific handles the equivalent of more than 15,000 truckloads of freight in Houston each day

• If that freight traveled on trucks that were stacked nose-to-tail on Houston’s roadway system, the trucks would consume more than 200 lane miles

– One 40-ton truck does as much damage to roadways as 9,600 automobiles, according to a government study cited in USA Today

10

Moving goods from ships…

To rail… Instead of roads.

Houston railroads serve public transportation interests.

11

Perceived future of Houston rail freight, according to the H-GAC Regional Goods Movement Study (June 2013)

• Rail volume is expected to increase from 152 million tons in 2007 to 218 million tons in 2035

• “…the region’s rail and waterway system may not have sufficient capacity to absorb expected growth.”

• Rail capacity bottlenecks include single track mainlines and bridges, inadequate siding length, and rail yards at or near capacity.

12

How will Union Pacific change the picture? Creating Capacity.

• Gateways & Customers

• Capacity & Commercial Facilities

• Infrastructure condition

Process Initiatives

Organizational

Initiatives

“Iron in

the

Ground”

Technology

$

Time

• Distributed Power

• Defect detection

• Simulation tools

• Unified Plan

• Surge resources

• Inventory control

• Variability reduction

• Employee Engagement

• UP Way

Engage

Empower

SupportStandardize

Celebrate & Repeat

150,000

175,000

200,000

Aug2011

Oct2011

Dec2011

Feb2012

Apr2012

Jun2012

Aug2012

Oct2012

Operating Inventory(Freight Cars in Train & Yard Only)

Current172,000

Goal188,000

Freight Cars stored on-line: 33,000

Last Year187,000

13

Record Level Private Investment

2003 2006 2009 2012

$2.0

$3.7 ~$3.6

Train

Speed

17.8

mph

21.0

mph

2013E

2013 Capital Plan (In Millions)

Infrastructure Replacement

$1,700

Locomotives/ Equipment

$600

Capacity/ Commercial

Facilities $650

Technology/

Other $200

PTC $450

Increasing Investment ~$32 Billion since 2003*

* Includes Cash Capital, Leases and Other Non-Cash Capital

14

Union Pacific’s future for Houston

• Maintain a strong freight railroad

– Improve productivity through process, organization and technology

– Make targeted capacity investments

• Explore public-private partnerships that create greater freight fluidity, for example:

– Belt Junction doubletrack through UP-BNSF diamond – GCRD

– Strang Subdivision doubletrack – near PTRA/Bayport

– Crossing separation and closures – i.e., GCRD West Belt project

15

Locations of possible public-private projects.

Settegast

Yard

Old South

Yard [BNSF]

New South

Yard [BNSF]

PTRA

North Yard

MK Yard

T&NO

Jct

Quitman St

Belt Jct

Pierce Jct

West Jct

Rabbit

Crossing

Eureka

Yard

Gulf

Coast

Jct.

Carr St

Hardy St

Yard

Depot Yd

Alvin Algoa Arcola

Congress

Yard

Settegast Jct.

East Belt

Yard

Double

Track Jct

Strang

Yard

Barbours

Cut

Pasadena

Yard

Deer Park Jct

BNSF

Tower 26

Booth

Yard

Tower 87

Chaney

Jct

Tower 30

“Katy Neck”

HL&P

Baytown

Lloyd Yard

“Spring”

Union Pacific RR

Houston Belt & Terminal Railway

Port Terminal Railroad Association

BNSF RR

Rosenberg

Texas City

Galena

Park

Freeport

Angleton

Yard

Baytown

Subdivision

Belt Jct

West Belt

Strang

Sub 2MT

16

At-grade Crossings – Houston Terminal Subdivision Example

Settegast

Yard

Old South

Yard [BNSF]

New South

Yard [BNSF]

PTRA

North Yard

MK Yard

T&NO

Jct

Quitman St

Belt Jct

Pierce Jct

West Jct

Rabbit

Crossing

Eureka

Yard

Gulf

Coast

Jct.

Carr St

Alvin Algoa Arcola

Congress

Yard

Settegast Jct.

East Belt

Yard

Double

Track Jct

Strang

Yard

Barbours

Cut

Pasadena

Yard

Deer Park Jct

BNSF

Tower 26

Booth

Yard

Tower 87

Eureka

Jct

Tower 30

“Katy Neck”

HL&P

Baytown

Lloyd Yard

“Spring”

Union Pacific RR

Houston Belt & Terminal Railway

Port Terminal Railroad Association

BNSF RR

Rosenberg

Texas City

Galena

Park

Freeport

Angleton

Yard

Baytown

Subdivision

9 Crossings

Terminal Subdivision

46 At Grade Crossings

17

• Three times cleaner than

trucks on a ton-mile basis

• Four times more fuel efficient

than trucks

• Can haul one ton of freight

480 miles on one gallon of fuel

• Each intermodal train can take

up to 300 trucks off highways

Source: EPA, AAR

Transportation Greenhouse Gas Emissions

Freight

RRs 9%

Freight

RRs

43%

Other

Freight

26%

Trucking

31%

Intercity Freight Transportation (Based on Ton Miles)

Trucking

74%

Other

Freight

17%

Rail serves Houston’s transportation needs

18

• The highest and best use of rail is to transport freight

– Cleaner, cheaper and more fuel-efficient alternative to trucks

– 1 intermodal train = up to 300 trucks = up to 4 miles of trucks stacked nose-to-tail

• Growing freight rail traffic in Houston will consume available rail capacity

– On a shared line, a typical passenger train can consume as much capacity as 3 freight trains due to priority handling and passenger loading / unloading

– Where freight and passenger operations share limited capacity, a typical passenger train would displace 3 freight trains. For intermodal service, that could return up to 900 trucks to the roadways.

Summing up and looking ahead….